Moody’s downgrades IndusInd Bank’s credit rating to negative

IndusInd Bank on Saturday, May 10, said that Moody’s affirmed its bank rating and downgraded its outlook to negative from stable, reflecting the potential for further impact in the bank's solvency, funding, or liquidity.

Moody’s Investors Service on Friday, May 9, also downgraded the bank’s baseline credit assessment (BCA) from Ba2 to Ba1, reflecting weakness in its internal controls as highlighted by the discrepancy in derivatives accounting. Further, inadequate management oversight and concerns about the bank's medium term strategy due to resignation of senior leadership without adequate succession planning, also played a part.

IndusInd Bank had been hit by accounting lapses in its derivatives portfolio having financial implication of ₹1,960 crore. On April 29, CEO Sumant Kathpalia and Deputy CEO Arun Khurana resigned from the bank, following which IndusInd board appointed a "Committee of Executives" to oversee the operations of the bank, till a new MD & CEO assumes charge.

"...the accounting lapse highlights inadequate internal controls. The resignation of the top management has also raised concerns on other potential lapses which may get uncovered over the next few quarters," Moody's said.

IndusInd Bank reported consolidated assets of ₹5.5 lakh crore ($64.2 billion) as of December 31, 2024.

"Moody's Ratings has today affirmed IndusInd Bank Limited's Ba1 long-term foreign currency and local currency bank deposits and issuer ratings," the US-based credit rating agency said in a statement.

The lender’s long-term (LT) and short-term (ST) foreign and local currency bank deposit and issuer ratings, counterparty risk ratings (CRRs), senior unsecured medium-term note program and LT and ST counterparty risk (CR) assessments were downgraded to negative.

The rating considers the bank's strong capital, core profitability and adequate liquidity which will help mitigate near term risks to its funding and asset quality.

IndusInd's asset quality experienced some stress with gross non-performing loans (NPL) ratio deteriorating to 2.3% at the end of December 2024 from 1.9% at the end of March 2024, due to an increase in NPLs in the microfinance and credit card loan segment amid industry wide challenges in subprime retail loans.

The bank is also conducting an internal review of its microfinance business before finalising the accounts for the quarter ending March 2025, in response to concerns raised to management.

"While we expect IndusInd's NPLs to increase further, the bank's adequate provisioning will limit the impact on profitability and capital," Moody's said.

Shares of IndusInd Bank closed 1.04% higher at ₹818.20 on the NSE on Friday. The stock has lost 14.78% so far this year.

IndusInd Bank has a total market capitalisation of ₹63,687.70 crore, as of May 10, 2025, on the NSE.